Trade in Services Report

Financial Services

2.1 Sectoral Composition & Overview

• Gross Value Added (GVA) 2022: £14.3bn which constitutes 8.6% of the Scottish Economy. By Comparison, the UK FS Sector was worth £200.3bn in 2022, which is 8.8% of the UK economy.
• Employment 2024: 89,000 workers which is 3.3% of Scotland’s workforce. In 2022, employment was 87,000 workers which implies a productivity of £164,896.60 per worker in 2022.
• International Trade (Destination outside the UK) 2022: £4.5bn representing 31.3% of the Financial Services sector’s total Gross Value Added in Scotland.
• Domestic Trade (Destination in Rest of the UK) 2022: £8.4bn representing 58.3% of the Financial Services sector’s total Gross Value Added in Scotland.
• Total Exports (Destination not in Scotland 2022: £12.9bn representing 89.6% of the Financial Services sector’s total Gross Value Added in Scotland.

Source: Scottish National Accounts, UK National Accounts, BRES

Financial Services encompasses businesses engaged in activities such as insurance, pensions, asset management, and fintech. For the quantitative data analysis element, this sector includes firms classified under the Standard Industrial Classification (SIC) codes:

• 64 – Financial Services
• 65 – Insurance & Pensions
• 66 – Auxiliary Financial Services

A closer analysis of the Scottish financial services sector reveals that while there are interlinkages, the underlying composition of Scotland’s FS sector differs from that of the UK.

In Scotland, 27.5% of the sector’s GVA comes from insurance and pension activity, compared to 20.9% in the UK, which emphasises that Scotland’s FS sector faces challenges which are distinct from its UK counterpart. This composition reflects Scotland’s historic strengths in life insurance, asset servicing, and long-term savings rather than investment banking or trading activities^[7].

58.3% of Scotland’s FS GVA is also destined within the rest of UK, suggesting considerable integration with the wider UK sector.

Growth in the value of Scotland’s international FS exports has historically outpaced growth in the sector’s GVA prior to the pandemic, averaging 6.6% annual growth in exports, compared to 5.8% for the sector overall.

Exports to the rest of the UK have average 5.4% annual growth, similar to the overall sector which again highlights the level of integration between the Scottish and wider UK sector within financial services.

In recent years, the value of Scottish financial services was negatively impacted by the pandemic. Both the sector’s value and the value of international exports appear to have recovered, surpassing 2019 levels by 2022.

Source: Scottish National Accounts

Source: Scottish National Accounts

Source: OECD, CITP Research

Source: OECD, CITP Research

The UK’s financial services exports are highly concentrated, within the top 10 destination markets for financial and insurance services, the European Union and United States dominate the top 10. However, their roles differ: the EU is the leading destination for financial services whilst the US leads in exports for insurance services.

Over the past decade, the UK financial services sector has operated in an increasingly liberalised trade environment, with the UK being a less restrictive market than the average EU and OECD economy.

The shift towards greater global openness reflects the UK’s post Brexit reality. While the EU enables free trade within its borders, it is relatively restrictive to external economies – particularly in services. By leaving the EU, the UK has increased barriers with the EU while easing access to other global markets. The net result is improved access to less valuable markets.

Remaining^[8] barriers to trade in services largely arise from restrictions on the movement of people. These include visa requirements, recognition of qualifications, and limits on temporary business travel. The UK FS sector faces challenges in establishing foreign operations, particularly with its largest trading partners, in the U.S. and the EU.

* Score of 0 = Completely Open | Score of 10 = Completely Restricted

Source: OECD, CITP Research

2.2 Current and future global regulatory and non-tariff issues in the Financial Sector

We analyse the global trend of regulatory and non-tariff barriers in the financial sector including insurance, pensions, asset management, and fintech.

2.2.1 Global regulatory and non-tariff landscape

The global regulatory landscape in financial services is characterised by growing divergence, acceleration of technological change, and increasing compliance burdens.

First, global financial regulation is becoming more fragmented due to geopolitical tensions, varying policy priorities, and inconsistent regulatory reforms across jurisdictions. OECD analysis shows that only 30% of OECD countries systematically assess the cross‑border effects of new regulations—leading to unintended market‑access barriers for foreign financial institutions.^[9] Governments’ geostrategic approach and political change are producing diverging supervisory approaches, especially around digital assets, data localisation, and consumer protection.^[10] These means that firms face duplicative regulatory costs when entering new jurisdictions. Also, increased regulatory fragmentation undermines passporting, equivalence, and mutual recognition arrangements.

Second, digitalisation-covering fintech, payments, artificial intelligence, open banking, and digital assets- is transforming financial markets faster than regulatory systems can adapt.

For example, BIS/World Bank research highlights how fintech creates new market structures with unbundling and rebundling of services, network effects, and novel risks requiring updated regulatory perimeters.^[11] Comparative regulatory studies show uneven fintech regulation across countries, causing jurisdictional asymmetry and market access barriers for cross‑border providers.^[12] Regulators are adopting experimental frameworks to keep pace with innovation, but this leads to inconsistent global standards.^[13] Furthermore, advances in data‑access technologies (APIs, DLT, cloud) require new governance models to embed regulatory objectives without compromising data protection.^[14]

Third, increasingly stringent prudential, conduct, and operational regulations are expanding the compliance burden for financial services providers. For example, stringent prudential rules, such as capital requirements, external monitoring, and restrictions on permitted activities, can reduce profitability while improving risk management.^[15] Also growing supervisory focusing on liquidity, operational resilience, governance, and AI risk is raising compliance and risk‑management costs.^[16]

Altogether, the global landscape is set to feature higher regulatory divergence, more opaque non‑tariff barriers, and increasing compliance intensity, demanding greater international coordination to prevent market fragmentation and support safe, competitive financial innovation.

2.2.2 Sub-sector mapping

Insurance: The global insurance sector faces growing regulatory fragmentation as jurisdictions introduce divergent prudential, operational‑resilience, and ESG‑reporting requirements, creating significant barriers for cross‑border providers. Increasingly stringent rules on governance and consumer protection are spreading unevenly across markets, adding complexity for insurers operating internationally. At the same time, sustainability‑related regulations, such as transition‑planning obligations, are becoming more prominent, yet remain far from harmonised. Sustainability disclosure and due‑diligence requirements differ widely between regions, raising compliance burdens for insurers seeking international scale. These regulatory divergences function as non‑tariff barriers (NTBs) by imposing extensive behind‑the‑border procedural requirements, further amplified by data‑localisation and digital‑governance rules that complicate the handling of sensitive claims and customer data.^[17]

Pensions: Pension systems confront mounting regulatory barriers driven by inconsistent supervisory practices, investment‑governance rules, and the global divergence of ESG (Environmental, Social, and Governance) frameworks. Increasing fragmentation across prudential and conduct standards, which also affect pension entities embedded in the broader financial‑services ecosystem. The private sector analyses that divergent^[18] sustainability‑disclosure regimes, such as varying climate‑risk metrics and taxonomy‑aligned reporting, further complicate cross‑border pension operations. Also, how sustainability rules are evolving along different regional trajectories is creating additional reporting burdens for pension funds operating internationally. These regulatory inconsistencies operate as NTBs by imposing high compliance and administrative costs, particularly where risk‑reporting, governance, and transparency requirements differ widely.^[19]

Asset Management: Asset managers face a complex regulatory landscape shaped by diverging prudential rules, consumer‑protection requirements, and reporting standards across countries. The private sector’s regulatory assessments highlight that scrutiny on liquidity risk management, operational resilience, and governance obligations is rising and increasingly diverge. Also, ESG obligations, such as sustainability taxonomies, stewardship expectations, and disclosure frameworks, differ substantially across markets. Namely, sustainability rules are becoming more complex and fragmented, raising reporting and compliance barriers for asset managers that operate globally.^[20]

Fintech: Fintech faces the most pronounced regulatory asymmetry of all sub‑sectors due to varying national approaches to digital‑asset regulation, AI governance, open‑banking frameworks, and innovation supervision. A comparative study of fintech regulation across the US, UK, and India finds sharply uneven regulatory maturity, leading to inconsistent operating environments and significant barriers to international expansion. The World Bank’s global review of regulatory sandboxes further shows that countries differ markedly in how they support and regulate fintech innovation, resulting in unpredictable cross‑border conditions and accelerating regulatory divergence. These differences translate into significant NTBs, especially through data‑localisation rules, cybersecurity requirements, and incompatible technical standards.^[21]

2.3 Summary from Financial Services Roundtable

This roundtable consisted of senior leaders from Scotland’s financial services industry, including a major bank, insurers, leading trade associations as well as representatives from the fintech sector. Participants agreed that Scotland remains a competitive European financial centre with established strengths in asset management, insurance and pensions as well as growing capabilities in data‑driven finance and fintech. The sector makes an important economic contribution in Scotland (estimated at close to £15 billion GVA in 2024, around a tenth of national output) and benefits from a strong skills pipeline and comparatively lower operating costs than several peer locations.

Sales remain heavily concentrated in the rest of the UK rather than diversified across EU and non‑EU markets. These structural frictions and market concentrations have contributed to weaker international services performance in recent years. However, participants were notably less concerned about the impact of Brexit on the sector compared to all the other roundtables.

Notwithstanding these headwinds, the overall outlook is positive if policy and support levers are aligned. Roundtable participants emphasised on the practical priorities, including easing short‑notice staff mobility, improving mutual recognition of professional qualifications, reducing duplicative compliance, securing scale‑up finance for export‑oriented fintechs and presenting a clearer, more consistent international proposition for Scotland’s offer on the global scene.

2.4 SWOT Analysis: Financial Services

2.4.1 Strengths

Core Institutional Anchors

• Edinburgh and Glasgow host globally significant activity in investment management, insurance and pensions, and banking and custodial services.
• The sectors performs an enabling function for trade across other sectors.

International Footprint

• The sector has strong linkages with key markets such as United States and the European Union.
• While not in the underlying economic data, primary research indicates that firms have reported increased engagement in Middle Eastern hubs such as Dubai and Saudi Arabia.
• Long standing links in Asia Pacific, especially Hong Kong retain commercial value.

Regulatory and Legal Credibility

• A mature and predictable regulatory framework supports investment and innovation.
• Labour costs remain competitive relative to both London and New York. This was confirmed as a strength in the roundtables as well.
• Legal certainty, access to English law, as well as London helps position Scotland as a key competitive financial centre.

2.4.2 Weaknesses

Export Concentration and Structural Dependence

• Heavy reliance on rest of UK as a primary export destination. Therefore, does not provide the diversification benefits that may come with export activity due to strongly correlated business cycles.
• Limited direct international client relationships for some firms.
• Dependence on London based capabilities and branding.

Talent Competitiveness Pressures

• Income tax differentials with the rest of UK have been exerting upwards pressure on compensation. This is especially acute for early stage fintechs who chose Scotland due to its overall lower cost environment.
• Visa costs, administrative burden, and mobility frictions can constrain access to global specialists.
• Salary adjustments to offset tax differentials have led to reduced investment capacity elsewhere, which was a sentiment echoed by several participants at the roundtable.

Scale Up Constraints

• Uneven access to scale-up capital for fintech firms.
• Duplicated compliance, onboarding, and licensing costs in new markets slow internationalisation.
• Smaller firms struggle to convert technical capability into overseas mandates at pace.

2.4.3 Opportunities

• Sustainable finance and ESG leadership, especially to European clients and customers.
• Strong global demand for environmental, social and governance investment strategies. This is especially true from European customers seen keen on ESG strategies.
• Existing Scottish strengths in asset management and responsible finance provide a platform for export growth.

Regulatory cooperation and market access

• Enhanced EU and third-country regulatory cooperation could reduce cost to serve and reopen channels for growth.
• UK free trade negotiations offer space for structured regulatory dialogue, even where financial services are not core chapters. Fintech expansion into high-growth markets
• Strong demand in the Middle East and Turkey for digital financial solutions even though the growing nature of activity means this is not clear from economic and trade data.
• Regulatory autonomy following Brexit may allow targeted innovation frameworks that strengthen competitiveness – especially for incorporation of AI within the fintech ecosystem.
• Opportunity to position Scotland as a specialised, innovation-driven financial centre distinct from London.

2.4.4 Threats

• Rising global protectionism and trend towards localisation in banking and insurance.
• Geopolitical uncertainty in other sectors can dampen financial services trade. For example, trade finance is highly correlated to overall trade levels.
• Immigration and mobility constraints reduce access to talent.
• Regulatory divergence between UK and EU have led to a new regime in complexity levels.
• Competitive repositioning by other global financial centres.

2.5 Roundtable Feedback and Policy Considerations

2.5.1 UK Government Reserved Policy Matters

• Encourage the re-establishment of structured UK–EU regulatory cooperation in financial services, including dialogue on wholesale markets, supervisory cooperation and transparent equivalence processes, in order to reduce duplicative authorisations and regulatory uncertainty.
• Advocate for mutual recognition or streamlined approval pathways for professional qualifications in financial services occupations, including investment advisers, actuaries and auditors, prioritising markets where Scottish firms have commercial presence.
• Support improvements to business mobility arrangements, including short-term business visas and streamlined intra-company transfers for regulated financial roles.
• Encourage the UK Government to maintain EU data adequacy and to strengthen cross-border data transfer provisions in future trade agreements.
• Promote the inclusion of regulatory dialogue mechanisms and digital financial services provisions within new free trade agreements, including expedited licensing approaches for firms subject to strong home state supervision.

2.5.2 Scottish Government Devolved Policy Matters

• Review the interaction between the Scottish personal tax regime and international talent attraction and retention in high-value financial services roles.
• Assess the impact of visa costs and mobility frictions on internationally active firms and consider targeted support mechanisms where appropriate.
• Strengthen export diversification by incentivising firms to build direct overseas client relationships beyond the rest of the UK, with a focus on the United States, Middle East and selected Asia-Pacific markets.
• Improve access to scale up finance for high growth fintech firms seeking to internationalise and seek new markets.
• Provide practical compliance and market entry advisory support to reduce duplicated onboarding and regulatory costs in priority markets.
• Ensure that Scottish trade promotion activity is closely aligned with UK wide branding and embassy support to avoid duplication and fragmented positioning overseas.

2.5.3 Joint Scotland–UK Delivery Mechanisms

• Establish a formal Scotland–DBT financial services working group to align export priorities, share sector intelligence and inform UK trade negotiations at an early stage.
• Develop a jointly agreed priority market framework for financial services exports, aligning trade promotion, regulatory dialogue and mobility objectives.
• Strengthen engagement between Scottish sector representatives and UK regulators in international supervisory dialogues to ensure cluster specific intelligence informs market access discussions.

2.6 Case Study: Financial Services Sector

A Scotland headquartered investment management firm with a long-standing EU client base historically exported portfolio management and investment advisory services directly from the UK, relying on EU passporting rights to serve institutional and high net worth clients across multiple member states. These services were delivered primarily on a cross-border basis, with core investment decision making, risk oversight, and client servicing located in Scotland.

Following the loss of EU passporting rights and the absence of a comprehensive and durable UK–EU equivalence framework for investment services, EU supervisors required regulated activities servicing EU clients to be conducted through an EU authorised entity with sufficient local “substance”. A UK licence alone was no longer sufficient to onboard new EU clients, renew mandates, or materially change existing contractual arrangements.

To preserve access to EU markets, the firm established^[22] a regulated subsidiary within the EU-27. This required duplicating governance, compliance, and risk functions previously performed in Scotland, repapering EU client contracts under EU law, and restructuring operating models so that portfolio management could be delegated back to the UK only under tightly controlled conditions.

These changes imposed significant fixed costs, incurred simply to retain existing export revenue rather than to expand market share.

The barrier did not take the form of a tariff or explicit restriction on trade but operated through regulatory market access requirements that effectively shifted service delivery from what was previously a cross-border supply to local commercial presence. While the firm continued to employ investment professionals in Scotland, client-facing, regulatory, and oversight roles increasingly sat outside the UK. For smaller Scottish financial services firms without the resources or scale to establish EU entities, similar constraints resulted in curtailment of EU market participation or complete withdrawal. Moreover, the headcount in new personnel growth is now expected to be outside of UK.

Market access remains technically available, but only through costly organisational restructuring that weakens Scotland’s position as a direct exporter of high value financial services.